On 1 January 2015 the VAT law changed for electronic services that are supplied digitally to non-business customers. Those customers must now pay VAT on the e-service at the rate that applies in the country where they receive the service. It’s up to the supplier to work out the VAT due, and pay that VAT to the local tax authority. There is no minimum threshold of sales below which VAT is not due.
The UK has set up the VAT-MOSS system to collect and pay over the overseas VAT payable by UK based suppliers. However, in order to use the VAT-MOSS system a UK business must first be registered for UK VAT.
HMRC say a business which is not currently VAT registered in the UK, can register for UK VAT and the VAT-MOSS system in one online application. After that the small business will not have to apply VAT to its sales to customers in the UK, as long as the total value of those UK sales are below the VAT registration threshold of £81,000. This is a change in the VAT law, as previously a business which was VAT registered was required to charge VAT on all its sales from the date it became VAT registered.
HMRC make it clear that the small business does not have to formally split into two entities to use this special VAT-MOSS status, in order to protect its UK customers from VAT. Only one business entity will exist, but it will need to file nil VAT returns in the UK every quarter, and VAT-MOSS returns for the overseas VAT collected in each calendar quarter.